Taxes for Self-Employed Individuals in the Philippines
Suck at money? Congrats. You’re part of the 99 percent of people in their 20s floundering when it comes to finance. Adulting is hard, and money is harder—especially when it’s your own and not your parents. My Two Cents is here to break down everything you need to know about finance, business, and entrepreneurship. We’ll tackle all the basics, from how to get a business permit to how to invest in stocks, to educate the fledgling adults on how to not go broke.
Welcome to the idiot’s guide to money. Seventh lesson: Taxes for self-employed individuals in the Philippines.
In a previous My Two Cents session, we discussed how to apply for a TIN and register as self-employed with the Bureau of Internal Revenue (BIR). That was the easy part. What follows is the process of actually paying—and computing—your taxes on your own.
This might get a little complicated, so time to roll up our sleeves and get right into understanding taxes for self-employed Filipinos.
Calculating your taxes
There are two main taxes every self-employed individual, entrepreneur, and professional must pay: the personal income tax and the business tax. Both of which are pretty self-explanatory.
Under the current administrations Tax Reform for Acceleration and Inclusion (TRAIN) law, self-employed individuals paying their business tax can opt to pay either the value-added tax (VAT) or the percentage tax (eight percent tax). Under TRAIN’s policies, self-employed individuals whose gross sales or official receipts amount to less than P3 million can avail the fixed eight percent tax on gross sales.
Meanwhile, for the personal income tax, TRAIN states that self-employed individuals and professionals who earn less than P250,000 per year (or roughly less than P21,000 per month) are exempted from paying income tax. However, if your annual income exceeds P250,000, then you’ll have to follow TRAIN’s income tax bracket system.
The graduated income tax for the period from 2018 to 2022 is as follows:
- If you earn less than P250,000 per year, you don’t have to pay any personal income tax.
- If you earn P250,000 to P400,000, you need to pay 20 percent of the excess over P250,000.
- If you earn P400,000 to P800,000, you need to pay 25 percent of the excess over P400,000, plus an additional P30,000.
- If you earn P800,000 to P2 million, you need to pay 30 percent of excess over P800,000, plus an additional P130,000.
- If you earn P2 million to P8 million, you need to pay 32 percent of the excess of P2 million, plus an additional P490,000.
- If you earn more than P8 million, you need to pay 35 percent of excess over P8 million, plus an additional P2.41 million.
Paying your taxes
Now here comes the hard part. After trying to wrap your head around all the math that comes from computing your taxes, then you have you have to actually pay them. Everyone has to file an income tax return (ITR), even if you earn less than P250,000 and have no personal tax to pay.
Filing ITRs today is definitely easier than it once was. The 12-page forms have been compressed to four pages, and there are now online services that let you prepare and file your ITRs. You can also settle your tax payments via online banking.
There are two methods you can take: online and offline. While online is the preferred method as it saves a lot of time, it will do you good to know how to file your taxes in person just in case there’s a technical error on the website. Here’s how to file your ITRs in person:
1| Download Form No. 1701A (for annual payments) or Form No. 1701Q (for quarterly payments) from the BIR website.
2| Fill out the form as advised.
3| Go to any authorized agent bank of your regional district office (RDO), show them your documents, and settle your tax payments.
4| Once complete, they will stamp your form to validate your ITR.
You can also fill out your ITRs online using BIR’s Electronic Filing and Payment System (eFPS).
1| Register for an eFPS account if you don’t already have one. It will take around three to 10 days to approve your enrollment.
2| Using the website’s interface, you can start filing your ITRs using their online forms.
3| You can also use their payment mode to settle your tax payments online. They don’t serve every bank, so double check that yours is there.
4| Once you’re done filing and paying, you’ll receive a confirmation notice. You can then print your ITR, and just in case, you can get certified at your RDO just to be on the safe side.
ITRs for self-employed individuals need to be filed quarterly (every May 1, August 15, and November 15) and annually (April 15). And these aren’t flexible dates—you have to meet the deadline or else you could face penalties of up to 12 percent interest per year if you fail to pay your taxes in time.
Don’t even try to avoid paying your taxes, or you’ll be sued for tax evasion. That’s an entirely different mess you don’t want to find yourself in, so be a good citizen and understand the importance of taxes for self-employed individuals.